Syp from Bio Break, who is probably the only MMO blogger beating my post count per week, wonders what whether the $15 per month standard subscription fee is appropriate for smaller MMORPGs. He says: "While free to play games are all the rage these days, and quite possibly the future of the industry, there’s still a lot to be said about the stability and full-featured goodness of the subscription model. That said, I think that Fallen Earth is asking a bit too much of consumers to swallow both a $50 initial price tag and the industry standard $15 a month subscription." I totally agree.

Dungeons and Dragons Online reported a 40% increase in subscriptions since going Free2Play, with Turbine reporting some players now spending considerable more than $15 per month. Which is pretty much exactly what the opponents of the Free2Play model complain about. But what would be the alternative? Can small game companies survive on monthly fees significantly lower than $15?

The problem here is something economists call "marginal costs". And no, that doesn't mean a cost that is so low that you'd consider it "marginal". "Marginal cost" in economics speak is what it costs to produce 1 more unit, or in the case of MMORPGs serve 1 more customer. It is easy to see that when going from 0 players to 1 player, the marginal cost is huge, basically the whole cost of development and enough infrastructure to run the game for 1 player. Going from there, the marginal cost for every further player decreases by a lot. Adding one more player to World of Warcraft is very close to zero cost to Blizzard. So while the cost per player goes down with the number of players, the income per player is fixed. Meaning that to have the same profit margin a smaller game would need to ask a *higher* monthly fee from its players than a bigger game. The economy of scale in the MMORPG business very much favors the big boys.

That is something which is nearly impossible to explain to your customers. Smaller games, like Fallen Earth or Alganon, can be an interesting alternative for people who prefer niche games to mass market games, or who are simply burnt out from the mass market fare. But the average customer is going to look at the mass market game and the indie game side by side, and notice that the smaller game has less content, and is less polished, while still asking for the same price. There is a serious lack of price differentiation with the monthly fee model.

In the classic post on price differentiation, Camels and Rubber Duckies, the author shows how to calculate the maximum total profit given how many people would buy an item at a given price. I am not sure that World of Warcraft is at that optimum, I have a faint suspicion that they would make more money if they priced themselves at $20 per month, as they would get a third more revenue, but probably not lose a third of their players. So the conspiracy theorist in me is asking whether that is deliberate, because by deliberately underpricing your high quality good, you effectively keep competitors out of the market.

But the same post of price differentiation also explains why the Free2Play model is becoming so popular: By not going for one optimal fixed price, but by letting everybody pay as much as he wants, the profit is a lot higher. And in the case of Free2Play MMORPGs, the model gives smaller games a chance to escape an unfavorable price comparison with World of Warcraft. I still haven't tried Runes of Magic, but I hear it is very similar to World of Warcraft and nearly as good. At $15 per month the "nearly as good" part would kill it. But as Free2Play the "nearly as good and you can play for free" makes a much better marketing pitch.

So, how do you think smaller niche games should finance themselves? Should we just be paying $15 for every game, regardless of amount and quality of content? Or is the monthly fee business model dead? And if yes, did World of Warcraft kill it, or was it Colonel Mustard in the library with the wrench?
- posted by Tobold Stoutfoot @ 6:30 AM Permanent Link
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There's an online Flash game called Conquer Club. It's basically online Risk, with the original Risk map plus lots of different player made maps. Everything was done by one guy, originally in his spare time. It was a big deal when he quit his job to work on the site full time. The price point for that was $20 for a year, and that gave you unlimited games (you could play up to 4 for free). Nearly everyone paid the $20.

I'd love to see a bit price difference in the market. Not necessary WoW going for $20, but a new MMO who splits his features would be interesting I think.I'm talking about three different games, each costing $5. The first is levelgame, the second ist raids, the third is pvp. Character transfer between the three would be possible anytime, but in the latter two you could also create maxlevel-beginnerchars (who could never enter the levelgame). Over time the pricing could shift a bit depending on the amount of developing cost going into each part. And your skills could change naturally so you are not burdened with a useless Taunt in the pvp-part.

That kind of game would be a big advantage for people like me who simply don't participate in all three parts. I really don't see why I should finance the pvp-development of WoW when I simply never participate. Nowadays I don't even raid, so it would be a nice price for me.

I've been checking out Runes of Magic recently - not so much because I'm looking for a new MMO, but more out curiosity because I too had heard that it was very good for a free game.

I think it's a stretch to say it's "nearly as good" as WoW. But it is definitely good, it's polished, it has some interesting concepts distinct from the (many) fantasy MMOs I have tried.

My concern is, it seems to be soooo heavily based on the concept that at endgame, the quality of your gear, and thus the effectiveness of your character, will be directly proportional to the amount of money you spend at the cash shop.

It seems that there is an enormous difference in character power between someone who plays for free and someone who blithely spends diamonds on refining jewels, purified fusion stones, drillers, transmutor charges etc. That’s probably what will keep me from sticking around for the long haul, the word from the forums is basically “sure, you can play for free and have some fun, but at endgame, don’t expect to ever be welcome in a group with your horrible gear.”

Constantly added content and regularly improving game quality = more money for month, maxing at 15$ sub fee. I don't see paying that much for Fallen Earth and Champions Online, as they are new and full of game quality issues. WAR tried so hard to be a AAA game title but has failed miserably due to awful programming and game design, thus not worth $15/mo.

Well 15$ is cheap, unless you plan to play a couple of hours a week.I don't know if the subscription model is dead and I don't know how stable the income of a f2p game is.I mean, probably you play a while for free, then you will say 'what the heck' and buy some stuff with real money but you may get bored very quickly. So you have those bursts of income instead of a steady revenue from say long (3 months or more) subscriptions.I would say that a game which want to stay around for long time the subscription model is still the way to go.And seeing vendors selling stuff with real currency in game (as in DDO) is very annoying and it damages the consistency of the virtual world.

I don't have a problem with the monthly subscription fee however I would like to see more flexibility in the subscription plans. I'm happy yo pay the fee if I play a lot yet if I'm barely logging in every month then it becomes a lot tougher a question.

The Low Cost alternative and the Niche product are entirely different types of businesses. The niche market satisfies a specific demand that the incumbent fails to satisfy, while the low cost alternative knowingly sacrifice product value to attract an audience which are price sensitive.

Fallen Earth is clearly aiming at the niche, perhaps it is enough of a niche to be a "small community" to get profitable on one server. A typical full server of subscribers will land you something like $5M per year in revenues which is decent money.

Runes of Magic on the other hand is aiming for the low cost alternative, micro payments and all that stuff. To reach a $5M revenue per year with that model you probably need something along the lines of 20 full servers.

(The math: 25% peak concurrency of a few thousand players, 2 to 5k.)

What happened with WoW was that they were aiming at an existing market, but without anyone knowing actually brought the whole genre into a New Market which happened to be an order of magnitude bigger than any industry expert had predicted beforehand. Now the same thing is happening with Zyngas FarmVille on Facebook. No one can know where it will end. :-)

F2P works as long as you release buyable "content" that sells. Say you release a new raid and nobody buys, you're stuck with designers, testers, and hardware that burned a hole thru your cash. So i'd say F2P is a risky business. On topic, very interesting question. I'd say the market is quite captive thou, i've tried everything and wow's still the better one. Kinda reminds me of a monopoly on a service. Shame Aion didnt try to undercut btw, that'd have been clever.

You have linked to Joel Spolsky's terrific pricing article before and everytime you do I end up rading the whole article and enjoying it immensely. It really is a classic.

On the subject of mmo pricing - I do think that price differentiation is probably the only solution for smaller mmos but as Joel's article points out clumsy differentiation is a sure way to piss off your customers. I think that that the "pay to progress more quickly" model falls into that trap. For every addicted customer who pays €300 per month there are probably 100 potential customers who read about it and decide that the game is a rip-off.

I think that price differentiation based on access to content is a far more palatable route because you get what you pay for (access to extra content). Guild Wars, Club Penguin and Wizard 101 all use variants of this and each is extremely successful.

I have a faint suspicion that they would make more money if they priced themselves at $20 per month, as they would get a third more revenue, but probably not lose a third of their players. So the conspiracy theorist in me is asking whether that is deliberate, because by deliberately underpricing your high quality good, you effectively keep competitors out of the market.

So, basically, Blizzard is doing the same as the mass-producing glyph-goblin, who, even in the absence of competition, won't raise his prices above 15g, because as soon as he does, lots of random vendors will swarm in and try to grab a share of the market. Thinking about it, it's a good thing Blizzard doesn't do the other goblin move and say "aw shucks, let's drop the price to 10 bucks for a while, shall we?"

As for Free2Play, I rambled a month ago on why I wouldn't like to see a game I play to go with it. Wall-of-text-warning.

I do think that there are good and bad ways to handle microtransactions. But in the end the player who is really into the game and wants to succeed in the endgame can't complain if he has to pay *something*. After all, you'll need to pay something if you want to do the endgame in a monthly fee game as well.

@Tobold: I never ever said to dislike monthly fees. As a matter of fact, the entire point of my linked rambling was that we need to pay something for the game (thus it can never be really and actually free to play) and I prefer that something to be monthly fees, since the resulting development focus is what I want to see in a game.

The DDO stat is a little misleading, as the F2P switch is a one-time boost in exposure, so naturally SOME of those people trying the game are going to sub for a month, if nothing more than to avoid the game constantly reminding you to penny up for this or that. Lets see if F2P solves all their issues in three-six months.

As for overall pricing, it depends what the game offers. Games like FE or DF are fine charging $15, as what they offer is rather unique in the genre. If you want player-skill based PvP in a fantasy world, if you don't sub to DF what are you going to move on to? Something like RoM can't charge $15, because its too easy to compare it to WoW and pick the 'better' game. As you said, their whole business is "we are almost WoW, but free*".

Reading both blogs I noticed you and Syp not linking to each other very often. Rivalry?

I made some jokes about the fact that Syp had one of the biggest WAR blogs out before WAR was released, and quit both that blog and WAR shortly after release. I think Syp took offence to that and blacklisted me.

Other than that my only explanation is that we are actually writing about very different things, me more looking at the past and present, and him more looking at the future. We might end up linking more to each other when we both play the same game, which will probably be SWTOR.

The funny thing about marginal costs is that much of that is the start up being amortized because until the game is released all the dev costs are eaten with zero income, and you don't expect to make it all back on day one, you spread it out over a couple or three years. However, given the success of WoW, Blizzard could actually "destroy" the MMO industry by dropping their monthly fee to $9.99, still make a huge profit, but raise the barrier of entry for opponents.

The monthly fee (pegged at an arbitrary $15) will likely never go away. Too many people think it's good value (whether or not it objectively is).

The better question isn't "is every MMO worth $15/month" (since it's silly and obviously answered in the negative), but rather, "what is *this* MMO worth in the current market and considering its design?" That question is accompanied by "How can we maximize the revenue curve?", which more often than not means breaking the pricing up into something other than "one size fits all" since not everyone is happy at the same price point.

(Which suggests the corollary that I've written about before: If everyone is charging the "industry standard", then the potential clientele is unnecessarily limited and often engaged in poaching exercises.)

I don't think it's a conspiracy but I think it's partly historical, partly due to microtransactions.

When WOW launched it wasn't a done deal that they would become top dog. Everquest was insanely popular with many dedicated players who had stuck with it for year and Everquest 2 launched the same month.

EQ2 was $15 per month so WoW pretty much had to pick the same price point. Remember back then most of us considered them equivalent games, one just as good as the other.

In fact WoW emerged as the cheaper because EQ2 launched several paid mini-expansions in the first year while WoW patched in content for free.

I'm sure this was a big reason why they won that particular showdown.

Now what has happened since is that it's never been in WoW's interests to change the sub because they can raise the average take per player through account services. Paid character transfers, faction changes, hell now you can pretty much re-roll your guy without losing level 80 if you pay them money.

They probably are taking an average of $20 per subscriber without having to blatantly raise sub prices, they've just been cunning.

Your economics has a fallacy. It assumes that a low cost, small team 'budget' MMO has the same cost to produce as a Blizzard Title. Less development cost means that the fee can be significantly less to make the same profit margin.

Unfortunately, many of the budget titles seem to want to charge the 'Blizzard Standard' and charge full boat for box and $15 monthy fee.

A perfect example is the game you recently offered keys to. After playing it, and then seeing that they expect to charge 'Blizzard Rates', i literally laughed out loud and uninstalled the beta. Had it been a $10 download + $5 month sub, i'd have subscribed.

Shawno, I feel similarly. Free is free, but $15/month is pretty damn close to free for the most time-consuming leisure pastime of someone in a well-paying full-time job.

I find it hard to imagine a game that was fun enough for me to spend my leisure time playing it for free.. but that I wouldn't play if it cost $15/month.

Like Mafti earlier on in the thread, it's the initial cost that's more likely to dissuade me. I've played a number of older games like LOTRO and EVE and EQ2, where game including first month barely costs any more than a month's subscription alone. But I'm reluctant to splash out $50 to check out something like, say, Aion.

You're wrong, Tobold. Marginal costs per player are significant: bandwidth, extra machines, more CS representatives, etc. Adding 1 player may not cost a lot, but adding 5,000 players does. Divide out the cost of adding capacity for 5k more players by 5k and you get the real cost per player.

At the smaller scale, things don't magically get cheaper. The only way Meridian 59 was able to support employees is because I paid them a pittance. The times when I took a salary it was usually $12,000/year, and I did that for 3 years. Add to this fact that when I talked to people about pricing, they said that M59's $10.95/month was "almost the same" as WoW's $14.95/month (further ignoring the cost of the core box, expansions, etc.)

This is why the people who ask for $5/month subs are disappointing. Let's do some math: Let's say WoW makes 30% profit margins (they are higher) and everyone signs up for the best deal and pays only an average of $12/month (many people pay more). That means they make a profit of $4/player per month with costs of $8/player per month. So, if a small game wants to make the same profit per player, they have to have costs that are 12.5% of Blizzard's per person.

The only company able to make $5/month work was Jagex with Runescape; keep in mind if you go look at screenshots that Runescape had a significant graphics upgrade since it first launched and it took a long time for them to grow to where they are today. You're not going to get an MMO that looks better than Runescape on a $5/month subscription. And, it's going to be a hard sell to any investors who don't have confidence in the team.

This is one reason why as a developer I'm a fan of the pay for perks model, because the math works out a bit better than what I outlined above.

One possibility is simply not to charge for the box. That is, offer the game as a free download with perhaps a free week of play (or some other restricted trial) and then charge a subscription fee for those who continues to play. That's essentially what Wizard 101 does.

I recently took the plunge and signed up for Fallen Earth, but the $50 for the download gave me much greater pause than the subscription fee. I can always unsubscribe if I don't like the game, whereas the $50 up front is a sunk cost.